Swiss franc surge rocks global currency brokers

Currency brokers worldwide counted the cost Friday of the Swiss franc's unexpected surge with at least two declaring insolvency and others warning of heavy losses.

16.01.2015

(AFP) Currency brokers worldwide counted the cost Friday of the Swiss franc's unexpected surge with at least two declaring insolvency and others warning of heavy losses.

Switzerland's central bank shocked foreign exchange (forex) and other financial markets on Thursday when it scrapped its three-year bid to stop the franc from strengthening.

Within minutes the franc soared by 30 percent to stand at 0.8517 francs against the euro before returning to around parity - still 15 percent higher than Wednesday's rate.

The shock waves were felt in currency markets across the globe and some brokers could not withstand the jolt.

In London currency broker Alpari UK - sponsor of English Premier League football team West Ham United - declared insolvency Friday after clients' losses linked to the sharp rise in the Swiss franc were passed on to the company.

The news, revealed in a statement, followed a similar announcement by Global Brokers NZ in New Zealand declaring "a total loss of operating capital."

And in New York leading forex broker FXCM said it "may be in breach of some regulatory capital requirements" after clients left it with losses of up to $225 million (194 million euros).

Switzerland's central bank cancelled a policy Thursday to stop its currency strengthening beyond 1.20 against the euro, sending the franc soaring. The franc initially shot up by 30 percent against the euro, but has since settled around a 15 percent gain at parity with the euro.

On Friday the New York Stock Exchange suspended trading in FXCM shares after they plunged nearly 90 percent in pre-market trade, due to the broker's admission that some clients lost heavily on the franc's big shift, and their accounts could not cover the losses.

Bloomberg later reported it was in talks with Jeffries Group for a $200 million cash lifeline.

In Auckland, Global Brokers NZ announced it was closing after it sustained losses that meant it could no longer meet New Zealand regulators' minimum capital requirements.

Brokers reassure

In London, IG Group announced that its losses arising from the matter would total up to £30 million (39 million euros), but stressed its "extremely robust financial position."

Rival City Index meanwhile reassured clients that it had not suffered "any material impact."

And in New York shares Interactive Brokers lost 6.65 percent in early trade Friday after having warned that some clients had reported losses totalling around $120 million.

The SNB's surprise move came after defending the exchange rate floor since September 2011 in an effort to protect Switzerland's vital export and tourism industries, even buying massive quantities of foreign currencies to do so.

The rate was introduced as the eurozone crisis sent investors to the safe haven currency. More recently, the Russian ruble crisis put renewed pressure on the franc.

But the bank, which less than a month ago vowed to enforce the exchange rate floor "with the utmost determination", said Thursday it was no longer needed.